After you have selected the right vehicle, if you decide to go to the dealer directly, then there are some dealer gimmicks that you should absolutely be aware of. Having the right information before negotiating any deal would be best for you. When you start weighing the factors like rebates, financing incentives, and various fees, the process of negotiation can become rather complex and confusing.
So follow these tips to avoid any dealer tricks:
Sales Price, Trade-in, and Financing
The sales price of the vehicle you want to purchase is different from the trade-in value of your existing vehicle and the financing terms you select. These three are totally different transactions.
Remember! Sales price, trade-in value, and your financing should be negotiated separately.
The dealer will try to misrepresent or confuse you with these terms with improper representation. This is a popular dealer trick that you should be aware of. For example, let’s say that you have a trade-in that the dealer claims is far less than you think it is. He may try to trick you by adding $2000 to your final selling price in order to ‘adjust’ your lower trade-in value.
This is a dealer’s way of dodging you two ways. One is by not convincing you that you should trade your car in at a lower price. The second is by not allowing you enough leverage to negotiate the price of your vehicle. Dealers are masters at mining information. You must try to keep it simple and businesslike. That is why you should negotiate each of these items separately. You need to make your dealer aware of the fact that any of these transactions can be done without this particular dealer.
It is highly recommended that you start your negotiations with the sale price of the car. This item has the most amount of leverage for the dealer and you can negotiate from there.
Dealer Holdback
You may have heard that dealers get some kind of monetary incentives from the manufacturers on selling a new car. This is called a ‘Dealer Holdback’. Knowing about this incentive can help you. By knowing this, you can negotiate an amount that is closer to the actual invoice price of the car.
Sometimes the dealerships get substantial bonuses from manufacturers that help them meet their financial targets. That is why this inflow is taken into consideration when pricing cars.
Knowing a holdback amount actually helps when the dealer says that they are not making any money on the transaction. It is because their holdback incentive is not included in the invoice price you see on the car.
There are many places that show the amount of current holdback. You can do a general search under the search phrase “Dealer Holdback Honda Accord” and find some of the results. Dealers can earn a good amount from their holdbacks. Negotiating it directly is not recommended, but simply mentioning the fact that you know about it will be helpful especially if the dealer claims that he or she won’t make any money on the deal.
Comparing MSRP and Actual Sale Price
MSRP is manufacturer’s suggested retail price. It is actually the listed amount that a car manufacturer advises the dealer to charge. MSRP is actually the starting point in negotiations at the dealership. This price is actually listed on the spec sheet attached to a new car. Dealers may omit the MSRP price of a car especially when it is in demand. If a dealer does not advertise the MSRP, he may start negotiations at a higher amount.
MSRP amount does not include the whole amount as it does not include registration, taxes, destination charges, holdback and other fees. When these fees are added, it amounts to the actual sales price of the car. These additional charges are not part of the initial PSRP but are part of the final actual sale price of the vehicle.
Estimating poor value for trade-in
Dealers often make a lot of money off your trade-in. They will try to buy your used car on the cheap and then sell it for higher margins. Most of the buyers are unaware of this. They do not figure out the true trade-in value of their car and thus end up selling it for cheap.
Besides avoiding to mix the trade-in with the purchase, the other tricks the dealers use is lowball offer on your trade-in. Negotiating the price of a trade-in with a dealer is tough and most of the people end up selling their vehicle way below its true trade-in value.
The way to defend this trick is to get estimates from multiple dealers. You can also consult online sources like kbb.com to determine a fair value for your car. Multiple dealers will give different estimates. Compare those rates and negotiate with the one that gives a quote near to the true wholesale value of the car.
Vehicle Financing
Financing your vehicle is altogether different from the rest of the vehicle sale. You will find more about this in our “Shopping for your lease” chapter.
Vehicle add-ons
Trade-in is just one way of earning money by the dealer. Besides this there are a few add-ons the dealers add to your car deal to earn extra money. Following are some of the most common add-ons:
Dealer preparation fee: Most manufacturers pay dealers to remove the coatings and coverings that protect the vehicle during shipment. You should not pay the dealer again for this service.
Rustproofing/undercoating: Todays’ vehicles are manufactured to weather adverse climate and road conditions, you avoid paying for this additional service.
VIN etching: This is an anti-theft measure in which vehicle identification number (VIN) is etched into the glass. Some dealers offer this service but it can be done less expensively elsewhere.
Fabric Protection: Just say no to this expensive feature.
Paint sealant: This is just like a liquid wax you can purchase from an auto-supply shop.
Besides them look out for any prepaid-servicing packages, alloy wheel and tire protection that you should only subscribe if you feel it is necessary for your vehicle.
Auto Insurance
When you are buying a car, buying insurance from a dealer sounds convenient as they make the insurance purchase easy by bundling the policy with the deal. But buying the policy from the dealer is often expensive and you may get a better deal elsewhere.
Instead, you can ask the price of insurance and compare it with other policies online. You can often find a cheaper policy.
GAP insurance
GAP insurance is used to cover the finances if anything worse happens. But again, doing some research will help you save some money. GAP insurance compensates for the amount you paid for your car and the amount an insurance company would give you if your car was stolen or written off.
Let’s make it clear with an example. If your car is stolen, your insurer will pay out what it is worth at the time, which is likely to be lower than what you paid when you bought it. So when you are getting a replacement car there is a ‘gap’ between the amount your insurer pays and the amount you originally paid. If you bought the vehicle for $30,000 and the insurance company pays $25,000 for the vehicle, then the Gap insurance will cover this difference of $5000. It is not financially wise to buy the Gap insurance package from the dealer. In reality, the dealer is only reselling the policy that is provided by any auto insurance provider, which means they are making money in the process. You can check and compare its prices with online brokers, specialist insurers, and dealers. They usually offer cheaper policies than car dealers.
Extended warranty
Typically a vehicle comes with a three year or 30,000 miles bumper-to-bumper warranty that covers other parts of the vehicle. You can sign an extended warranty if you plan to drive the car for more than three years or your standard warranty. Dealers make thousands of dollars from extended warranties. You would only need an extended warranty if your existing warranty expires before your financing term.
If you are buying a new car there is no need for an additional coverage and again you do not need to buy this warranty from the dealer as well. Extended warranties are available from many 3rd party sources at any point in the life of your vehicle and can be shopped competitively. The value of extended warranties can vary greatly and the coverage provided can be customized according to the budget. There are a number of online companies that can serve your warranty needs online. Some of them are:
- Warranty Gold
- American Auto Warranty
- Warranty Wizard
